Friday, October 29, 2010

Not much explaining necessary here. The prices of all commodities are skyrocketing. The rapidly devaluing U.S. dollar vs. everything will soon reverberate through to your check-out tab at Walmart and Nordstrom's. Of course, as our system descends into Randian/Orwellian Governmental depravity, expect even less truth and more b.s. coming from all corners of D.C. I thought Obama's main campaign promise was to make Government more transparent and truthful.

(source: Casey Research. Edits in red/black are mine)

The only thing that is transparent about our Government is that is has become even less transparent and more dishonest under Obama. As this fact becomes more apparent to the hoi polloi, and as the hoi polloi finds it more difficult to provide a comfortable living environment for their families, we can expect to see even more distrust of fiat money and more people willing to pay a higher price to move what paper they have left into gold and silver. This is why gold/silver have resumed an inexorable move higher this week.

Thursday, October 28, 2010

By now everyone with a stake in this issue is fully aware of the lawsuits filed yesterday by two separate plaintiffs against JP Morgan and HSBC. It's not my intent to offer a view on how this suit will unfold and we certainly have no idea what the ulitmate intent is of the plaintiffs and its representing lawfirm, Lovell, Stewart, Halebian, Jacobson (i.e. are they going after an easy, massive financial settlement and not true justice?).

It's not my intent to analyze probabilities and offer speculation on whether or not the chain of judges that will ultimately review this case are not corrupted. To be sure, there are grey areas of the law to be debated in court in which any judge will have to exercise "judgement" as to whether or not this case has merit.

There's the very real possibility that the representing law firm will manage to extract a big settlement out of JPM in which this case will be put to rest and JPM is not required to admit to any wrongdoing. In Blanchard v American Barrick, JP Morgan et al, JPM was eventually dropped from the suit and Blanchard extracted a big settlement from Barrick AND ABX did not have to admit to any wrongdoing.

As for the "grey" area that can be exploited by a corrupted judge, I offer up this decision in the Reg Howe v BIS suit, of which every longstanding GATA supporter is knowledgeable and in which Reg Howe accused the BIS, Fed, Treasury, Bk of England and some bullion banks of manipulating the market. Here is the judge's decision to toss out the case:

...not because the Defendants didn't manipulate the price of gold. Rather, the case was dismissed for a reason that I consider to be a technical matter. The Judge said that Reg did not have standing.

To explain this point, the Judge states: "...there are many participants in the gold and gold derivatives markets who could allege a more direct injury than does the plaintiff. For example, there are many gold mining companies and private investors in gold (not to mention those central banks with gold reserves) that the plaintiff does not allege to be involved in the conspiracy. All of these persons or entities would be more directly injured than the plaintiff by a scheme of the kind he alleges." LINK

But let's fantasize for a second about a real possibility. If the Plaintiff is allowed enough leeway for discovery AND the plaintiff AND its law firm decide to do the right thing and take this case to its limits: this suit could ultimately reveal the extent to which JPM/HSBC actually have real physical silver/gold with which to back up and deliver if they were ever called on by the big long positions in the futures market. It could further lead to real discovery about the true extent of the paper short in gold/silver that we know exists in NY and London vs. the available of deliverable, unemcumbered bullion. I think we all know the answer to that issue, but knowing the truth and getting the legal door opened to prove it in a corrupted court system are two entirely different matters.

Ultimately this could be the kind of lawsuit that opens the necessary crack in the door that needs to be opened in order to completely rip apart our system in the way that GATA has maintained since its inception. There's a very real possibility that this lawsuit could open the door for what needs to be done to ultimately save our country.

Let's hope this suit is ultimately about Truth, Liberty and the pursuit of Justice and not just about a bulldog NY law firm with political connections taking on a lay-up lawsuit in order to extract a big financial settlement.

Tuesday, October 26, 2010

Hat tip to Mark at Strategic Energy Research and Capital for alerting me to this news report.

"Because the United States' issuance of dollars is out of control and international commodity prices are continuing to rise, China is being attacked by imported inflation. The uncertainties of this are causing firms big problems," Chen was quoted as saying by the official Xinhua news agency.

In the context of Tim Geithner's agenda being thoroughly squashed at the G20 meeting this past weekend, this official statement from the Chinese Government overtly conveys that China will implement monetary and financial policies which will protect its own economic interests. This is a direct and visible repudiation of the U.S. Government's attempt to exert influence on China's trade/monetary policies.

China has been quietly and diplomatically brushing off U.S. geopolitical hegemony dating back to four years ago when Bernanke and Henry Paulson went over in a determined attempt to "strong-arm" the Chinese into obeying the U.S. You can read about that here: Link

What are the ramifications? One glimpse of the "out of control" money printing by the Fed/Treasury is in the current spike in commodity prices, which will soon translate into much higher food prices. Now imagine what the conditions will look like in this country once China inevitably demands that its own currency is to be used in all trade between the U.S. and China. In other words, don't get used to the prices you are currently paying at Walmart and Best Buy.

From Bloomberg News: Treasury Shields Citigroup as Deletions Undercut Disclosure
Here's the news link: President Failure Think about this article when you vote next week.

On another note, scratching your head over the uncharacteristic strength of gold/silver right now? Were you expecting a big price correction like dopes who slavishly follow the moronic Gartman? Better tune in to the Truth. This is from the "JB" global gold report at http://www.lemetropolecafe.com/:

“Refineries report increased orders and much of the increase in demand seems to be India and the Middle East. The revival in physical demand without the market even breaking USD1,300/oz shows that physical buyers are not waiting for a major sell off before they accumulate bullion and that underlying gold demand, even in price sensitive economies, is strong.”

Is the physical market finally overwhelming the insanely absurd short interest in the paper market? Which one is real? LOL

Sunday, October 24, 2010

The USDX appears to have resumed it's descent tonight on the heels of the G20 meeting. In reference to my last post about the dollar, I said that from a "chart perspective" the dollar was oversold and could go through a corrective bounce that might take it back up to the 80-81 level. At the same time, I said that if it failed to trade back up to its resistance at 80 and rolled over again that it would be very bearish.

Here are updated weakly and daily daily charts of the spot dollar price as of this evening:

(click on charts to enlarge)

The charts are pretty much self-explanatory. I leave it to each reader to draw their own conclusions about where they think the dollar is headed next. I will say that it has become a source of extreme comedic relief watching Geithner prostitute his stupidity every time he's on the world stage pontificating about U.S. policy support of a strong currency.

It's clear from the action in gold and silver tonight that the gold hoarding countries of the world are laughing at him along with me, as the price of these monetary metals has shown solid resilience in the face of the attempted price takedown last week by the bullion banks. The big bullion accumulators do not really seem to care about the gold-bashing rhetoric flooding from the U.S. media. Given the rapid decline in sentiment indicators at the end of last week, it would appear gold and silver could continue their rapid ascent up the proverbial "wall of worry."

I'm not willing to go out on a limb and proclaim that the pullback in the bullion market is over. However, judging from the action in both the SPX and bullion futures tonight, it would appear that the U.S. financial and economic system is starting to assume "Weimar-esque" characteristics. Avete oro?

Saturday, October 23, 2010

This is a must-watch video from the National Inflation Association. For quite some time I have been offering up the view that China is going to eventually roll out a gold/silver-backed currency that will replace the dollar as the global reserve currency. I think people must think that I'm nuts (maybe I am, to an extent lol). But here's another analyst who sees it the same way as I:

Ultimately, I believe that once China has accumulated enough gold and silver, they will roll out a new currency backed by their bullion reserves. At the same time, they will have to concomitantly revalue the price of gold and silver both upward by a substantial amount in order to give gold/silver the value that would back the representative paper currency issued against that bullion AND to imbue a great enough value to back the amount of currency that will have to be issued in order to create efficient "fungibility" for the size of the global economy. This is where those who are accumulating bullion now will put themselves in a superior wealth position relative to everyone who disbelieves the true nature of gold and silver (even though 90% of 5000 years of human history is the relevant data point to understand the wealth-nature of gold/silver).

I was in a meeting a couple weeks ago with a potential client and I offered up this view of the "end game." He understands the need to start accumulating gold/silver and the value of also investing in mining stocks to make a "leveraged" play on the metals. But he really didn't think the dollar would be displaced. That right there is the psychological power and danger of patriotism.

"Dissent is the highest form of patriotism" - Thomas Jefferson

“Patriotism in its simplest, clearest and most indubitable signification is nothing else but a means of obtaining for the rulers their ambitions and covetous desires, and for the ruled the abdication of human dignity, reason, conscience, and a slavish enthrallment to those in power.” Leo Toystoy

Friday, October 22, 2010

This graph is self-explanatory. Obamanomics is defined as borrowing money that becomes the debt obligation of the taxpaying middle class - and is catastrophically unpayable - to enable the Government to hire 100's of thousands of people and put them to work doing either unnecessary or unaffordable tasks. This is a massive transfer of wealth out of the pockets of honest, privately employed citizens. In that it guarantees more votes and political support from unions and public employees for those in power, this is right out of the playbook of Ayn Rand and George Orwell.

This is a letter sent into Bill Murphy's "Midas," which can be read daily at http://www.lemetropolecafe.com/. Anyone who buys "bullion" from a big bank and allows the bank to "safekeep" it after reading this accounting deserves the paper currency they'll ultimately end up with in the end:

"Bill, Chris

I am in the final stages of getting delivery of some rather spread about metals holdings. UBS have been giving me consistent delays and aggravation eg "no problem - takes about ten days" followed by in two weeks time after I chase them "we have to have a wet signature, to replace your fax - just our system" - and then still later "your gold coins will take considerably longer, as there are a lot" - it is actually 250 we are talking about which I should not have thought was that many at all.....

Worse, right on the day arranged for delivery, they are claiming they have only just received the instruction and there will be further delays.

Worse yet, they are now saying that my Silver is held in a metal account, despite my paying for bars, and that if I want bars they will have to be made!!! at a cost of approximately 10%!!! This despite their continuing clear advertisement of Kg Silver bars on their website.

They ask then whether I would like to close my position instead in view of the cost. None of this was of course discussed or in play when I bought and I have asked them to retrieve the recordings of the order conversation. I have of course declined to "Close my position" because this means selling at their miserable freakin' bid, and letting them off their silver obligations scot free. I ordered Kilo bars, which I paid for in advance including TVA a few years ago and however this turns out it shows just another twist in the lying stinking conspiracy that is now pervasive. What I shall probably do is to leg in on ZKB, and close the account whilst demanding the bars. If I have to, ultimately I shall pay and then seek redress through the banking ombudsman in the in the UK which is of course the jurisdiction in which I lived when I made the purchase. Since they too operate in London, they may find this an embarrassing conversation, or then again they may get off scot free.

Just thought you might care to warn prospective delivery takers of the sort of wiles that are now being used to escape metal delivery obligations. My own feeling is that I am not big enough for them to care too much about, but what it does drive out it seems to me is that they are operating to instructions to try to make it as difficult as possible to take delivery, and to make sure there is the disincentive of a haircut into the bargain. The basis of trust has been completely discarded.
Dave"

(This "Dave" is not me - I would never buy my bullion thru a bank nor would I ever invest in the Monex and Kitco leveraged gold accounts). This particular "Dave" will be fortunate to get his actual physical bullion delivered to him - eventually. At some point in the future everyone else who buys their gold in this manner will not be so lucky.

I also wanted to share this exerpt from the latest issue of The Privateer. Many are not aware that the U.S. Constitution mandates gold and silver as the only permissable legal tender. But then again, the Constitution has largely been rendered irrelevant by the tyranny of big Government:

Article 1, Section 8 of the US Constitution reads as follows: “The Congress shall have Power ...To coin Money, regulate the Value thereof, and of foreign Coin.”

At the time that this document was being debated, the 13 colonies which were to become the original US states coined their own money. So did most other states and provinces in nations throughout the world. In most non-English European languages and in languages of nations ever further removed, the words for “coin” and “currency” were the same or synonymous. Money as it passed from hand to hand in the economy of the day was coin everywhere. Paper money had been a disastrous failure wherever it had gained sway, not least the “Continental currency” issued to fight the revolutionary war in the US.

Article 1, Section 10 of the US Constitution reads as follows: “No State shall ...make any Thing but gold and silver Coin a Tender in Payment of Debts.” Please remember that when this phrase was inserted in the Constitution the federal government in Washington DC did not yet exist. The States were expressly forbidden from coining money. The clear implication in this clause was that they could not replace GOLD and SILVER coin as a means of extinguishing debt. The Congress as it was being set up by the Constitutional convention was given no EXPRESS power except one - the power to COIN money.

Congress still has that power, of course, but it is a minor detail today amongst the printing press and electronic money which represents almost all of the global “supply” of US Dollars.

Wednesday, October 20, 2010

Looks like India was in serious "buy" mode last night after the London/NY ambush of paper gold. Per JB's invaluable report to be found at http://www.lemetrolecafe.com/:

Indian ex-duty premiums: AM $5.19, PM $5.19, with world gold at $1,339.56 and $1,340.20. Very ample for legal imports...Overnight gold weakness (Dec gold low down $4.90) was primarily an issue of $US weakness – and the strength at present is the obverse. However with Indian premiums at this level, a serious retreat is difficult to envisage. (emphasis is mine)

In addition, the daily open interest report from the CME, found HERE shows that the open interest for gold declined by a surprisingly small 7.7 thousand contracts. Even more interesting was the fact that the open interest for the February contract actually increased by 3,903 contracts. This o/i report stands out because historically on a day when gold gets shot by the cartel for $40+, we would typically see a much larger o/i liquidation and would never see any single-month increase. February is the next "front-month" for gold after December.

In silver, the o/i declined by a surprisingly small 362 contracts. Again, historically on day when silver is hit for a buck, typical o/i liquidation would be 10x that amount. It would appear to those of us who have been trading/investing/observing the precious metals market for the duration of the bull market that it is possible, maybe probable, that opportunistic dip-buying is being front-run by the competition of a growing number of accumulators (i.e. strong hands) globally looking to increase or start core positions.

Not quite in "take no prisoners" mode, but I would guess a big hedge fund is hitting the exit button:

(click on chart to enlarge)

If you own this stock, you still have to get out before the slow moving elephant herd of fund managers (i.e. Janus) realize they have to sell or face fiduciary responsibility lawsuits from big fund investors.

We've seen this pattern before. It will not end well unless you are short the stock...

This just in: Bank of America RICO'd in Indiana: Bank of America Accused of Racketeering in Foreclosure Lawsuit in Indiana

Tuesday, October 19, 2010

Pimpco and the NY Fed, among others, the NY Fed being the key piece to this, are now demanding that BAC buy back $47 billion in bad mortgages. Here's the news link: BAC: Look out belowwwww

It is likely that to the extent the Government and the Federal Reserve Bank decide to monetize this mortgage catastrophe, they will have to use Bank of America - seemingly the worst offender - as the "fall-guy." We know that Tim Geithner has a track record of not only not paying personal taxes, but rubber stamping the use of taxpayer money to bailout the fraudulent banking system. It is likely that is why he has not been sacked yet from the Treasury Office. They need a dope like him to sign the paperwork.

My advice: if you personally own any Bank of America stock, just get rid of it. If you are invested in a mutual fund that owns a large stake in BAC, get rid of that mutual fund. The fund manager is an idiot. Here are the largest fund complexes that own BAC stock: State Street, Vanguard, Barclays, Fidelity, JP Morgan, T Rowe Price, Axa, Bank of NY, Northern Trust, Janus.

Janus really raises my red flag because over the last 10 years Janus has a near perfect track record of having outsized positions in the biggest landmines of the decade. Hey - in the stock market - where there's smoke, there's a nuclear financial meltdown in process. Here' a link to the complete list of holders: LINK

"Jesse" of Jesse's Cafe Americain link brought the article below to my attention. Silver exported from China has declined 40% this year because of the strong internal demand:

“The demand is coming from all areas, including jewelry, investment and fabrication and this has resulted in a physical market shortage in the Far East...” “There are Chinese investors now hoarding silver, along with other resources, amid anticipation of higher inflation,” Feng said. “China is short of resources so these investors believe the metals will be more valuable in the future.”

Not much commentary is needed to highlight the implications of that report. I will, however, point out a couple of things: 1) the Comex paper short in silver is absurdly several multiples higher than the ability of those who are short (JP Morgan, HSBC mostly) to deliver actual physical silver if the buyers make that demand; 2) The gold/silver ratio is currently around 56; historically this ratio has been fixed as low as 8 (ancient Rome) and usually reverts down to its long term historical ratio of approximately 16 from time to time; 3) It is clear that even if gold were to remain at the current price level, the "poor man's gold" is rediculously cheap in relation to golden gold.

The best way to play this out is to keep accumulating physical silver, especially on price corrections - my preference is 1 oz. silver eagles in sealed mint boxes - and invest in high quality silver stocks (HL, SLW, SVM) and mix in well-researched junior exploration stocks. I will point out that Silver Dragon (SDRG, I own this stock and so does the fund I manage) is sitting on several properties in the heart of China's silver mining district (Erbahuo), one of which (Dadi) is being developed in partnership with Shengda (China's largest silver mining company). It has been determined that the size of the silver mineralization of Dadi is quite prolific. The 43-101 is available on the Company's website: SDRG.

In addition, the Comany has announced its intent to file for a listing on Toronto Stock Exchange (most of the conditions for this have already been met) and it will be filing a 43-101 on its second largest property, Laopandao, sometime this year. If you are interested, please spend ample time with the Company's website. In addition, CEO Marc Hazout is one of the few corporate CEO's who promptly and personally returns all investor phone calls or email inquiries. For rediculous regulatory reasons, a lot of valuable information is posted on the website which the Company is not permitted to announce with press releases (don't ask, it's a b.s. NASD regulation). My view is that once the Chinese have trouble satiating their demand for physical silver, they will turn their attention to investing in local silver mining stocks and SDRG will be get a lot of capital attention when this occurs.

Monday, October 18, 2010

I have an idea for a new post on inflation and I will get to that tonight. A reader asked a good question about using the COT to figure out the next move in the market plus had some good comments of his own. As such, I decided to post his comment and my respsonse. I would love to hear anyone else's view on this in the comment section. This is a great topic and a subject of potential heated debate.

Anonymous said...

Could you give us your thoughts on the various COT analyses which seem to cover the internet when talking about silver. As I understand it when Lehman was taken over (and it may have been true of Bear Stearns short position as well, the Fed agreed to compensate for losses on the short. Now I have never read that this guarantee was limited in time or rescinded. Indeed much of JP Morgan's short position may still be Fed loss indemnified as it has persisted to this time.

There are three different types of analysis on the COT commercial positions and they basically tell two different stories.

There is the short analysis and there is the net short analysis. These tell us that the commercials are maintaining their shorts and are increasing to short in the face of long strength. As Gene Arensberg says the shorts are waiting in background to pounce and JPM according to Gene is now in grudge position with four million ounces on hand (yawn) from it's position as the SLC trustee waiting for the grudge match to bring the price down.

(Doesn't Gene know that banks always try and nick the security when they are in trustee position and the legal cases on this clutter up the Courts. In the UK they even invent new "terms" to disguise the process of putting a company into acceleration a cross default event under the bonds, the loan is "on demand" while they try to half inch the security with factoring leasing and other forms of lending that in a reasonable view consist of a disposal or the threat of disposal of a main part of the business etc. To suppose that JPM would resolutely stand by the SLV investors is no more or less likely than BAC would never violate the representations and warranties when selling an MBS. It displays a naivity that reeks of a lost age that probably may never have existed.)

The other analysis is that the commercials long position on the COT's this tells a different story altogether. Eric De Groot uses this and deduces that a new profile has emerged because it shows the commercials short covering into strength for the first time and going increasingly long, a change in trading pattern. There is a rationale explanations for why this could be happening. Firstly, JPM may not be wholly at risk on the short position and secondly the short position may be laid down by the investment committee as banks strategy and could be allocated to other capital reserves other than the trading desk.

If either of the two reasons given above are correct then Eric De Groot by concentrating on the long position may be looking at the actual trading desks position. The trading desk may to a small extent be betting against the house because the dealers get paid bonuses on the profits on their positions and they really couldn't give two stuffs what happens to the house.

I would be interested in you view of the two COT analysis rationale. If you have the time.

In terms of your COT question. The true answer is that we don't know what the banks are capable of doing to try and create a typical COT liquidation stop-loss trigger. We just don't have access to the full data from the CME that insiders and banks have access to (i.e. I would want to see the true amount of physical gold sitting unemcumbered in the Comex dealer inventories at the Comex depositories and I would want to see a breakdown of the composition of the large spec category and the commercial category). As you can see, since the banks do have this info and we don't, it's a great example of the lack of free markets in this country.

Of course, Obama rode into office with one his promises being more transparency and honesty in Govt and true financial reform. He has delivered neither. In fact, if anything, the FinReform Bill actually gives the banks, in a round-a-bout way, a lot more power to hide, lie and cheat. Thanks Barack!

I have assumed a position of "neutrality" with respect to trying to use the COT as means of forecasting the next intermediate market move. It's one of those tools that is widely examined now (vs. 5 years ago) and certainly a lot of the predictive content gets priced into the market quickly now. So to say the net commercial short is near a record high and the o/i is near an all-time high and thus we should expect a big COT liquidation trigger is to take a simplistic view of how markets function.

I'm leaning toward the view (like De Groot's) that the physical market is too strong to allow the banks push around the price with paper like they have historically. And also the it is likely the character make-up of the large spec category is skewed more toward "stonger-handed" buyers vs. mosly technical "black box" players. But we don't know that for sure. And anyone who thinks that latest reporting changes at the CME have made the situation more transparent with respect to what the COT really looks like is kidding themselves.

I'm not arrogant enough anymore to think that I know better than the market OR that I know better than those (i.e. the banks) with the access to the actual true info I would like to have.

As such, my partner and I have positioned the trading positions in our fund for the possibility that we will get a big manipulated COT liquidation but we also are set-up for the possibility that this current "overbought" condition might resolve itself with sideways move or even a slower continuation of the current move.

Friday, October 15, 2010

Bank of America is the next Enron/Refco/Amaranth/Bear Stearns. Short of Fed intervention, I can smell this one a mile away. If David Tepper and John Paulson are still heavily invested in this one, they are screwed. I am buying out of the money long-dated low-strike puts to express my conviction.

"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists." … Ernest Hemingway

Many of you have already seen this Reuters news report, but it's significant enough to warrant highlighting and some commentary. In fact, it can be argued that this is an over statement of direct confrontation between China and the Obama Administration: U.S. is currency war's "tomb maker" -China economist

"The dollar's depreciation may appear to be market-driven. In reality, it is a depreciation coloured by very strong, deliberate actions," Li said in the paper, which serves as the chief mouthpiece of China's ruling Communist Party.

Up to this point acknowledgement of the nascent global currency war, led by the United States, has been largely relegated to commentary and debate in the various internet forums, blogs and truth-seeking media outlets (King Word News, LemetropoleCafe.com etc).

With this publicly overt, front-page statement issued to the world by the Chinese Government, China has elevated this global financial conflict into the dangerous realm of visible sovereign rhetoric and conflict. Not only has China thrust the issue of competitive currency debasement into full public view, but it has pointed out the obvious attempt by the United States to make - via aggressive, motivated dollar devaluation - its uncontrolled borrowing and spending problems the problem of the world:

"If the global financial crisis was about nationalising private debt, then in the post-crisis period the urgent need of the United States is to internationalise its national debt," he said.

Make no mistake about this. With this front-page statement by the Chinese Government via this Chinese economist, China is directly engaging in a war of rhetoric that could well polarize the global community into the emerging market "wants" and the Western developed countries who "had it and are losing it." See the above quote from Hemingway if you are curious about how this could eventually play out...

Helicopter Ben Starts The Engines - On A Whole Fleet Of Money-Dropping Helos

Yesterday the primary dealers were the primary buyers of the long-bond auction. Wall Street took down a stunning 59% of the entire auction. This is not bidders going thru Wall Street. This is direct monetization of the Treasury auction. This is so-called Quantitative Easing - "sterilized" money printing - because the Fed, indirectly through the banks - has taken in an asset against the electronic issuance of currency. I also believe that the Fed - although I don't have time to run through the "forensic" work to prove it outright - is also outright increasing the money supply without taking "assets" onto its balance sheet (I use "assets" because most of the toxic garbage the Fed has assumed is worth 10 cents on the dollar at best).

You guys can read the news release, but please understand that this statement implies that Bernanke is getting ready to monetize the mortgage crisis:

He said the central bank could expand asset purchases or change the language in its statement, while saying “nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.”

So there it is. The Fed will print money electronically, buy the fraudulent mortgage paper from Bank of America et, al. AND thanks to the deal Wheelin' Dealin Tax Cheatin' Tim Geithner cut with the Fed on behalf of the Taxpayer, ultimately the middle class taxpayers who still work and do not feed off the Government breast of food stamps and the interminable unemployment benefits will end up paying for this mess. My bet is we collapse before this all actually unfolds.

AND FINALLY...

Most of you have likely seen this chart, which was posted ad nauseum around the internet yesterday. But this is one of those pictures that has a 1000 words. I added just 22 of my own to emphasize the point of the chart (thanks to Sprott Asset for sharing that with the world):

(click on chart to enlarge)

One of the original intellectual arguments that got me intensely interested in the precious metals sector was Jim Dines' proposition back in 2000/2001 that it would just take pension funds in this country alone moving 1-2% of their asset base into the mining stock sector to ignite a move that would dwarf the move we experienced in the tech/internet stocks during that bubble. Now imagine if they end up moving 5% of their assets into the sector AND globally big investment funds to the same. As you think about this, keep in mind - and this is a verifiable fact - the market cap of every mining stock in the world combined is less than the individual market cap of each of the top 10 stocks in the S&P 500.

Have a great weekend (will be out of town so I might be a bit slow in posting comments but will be checking periodically).

Wednesday, October 13, 2010

To start - and I qualify this comment by saying that I am reeeeally trying to exercise grace and humility with respect to this situation - I find it amusing that the reader who continually busted my stones over my bearish dollar call has not shown up since his announcement with the dollar at 80 that he was going to get massively long DX. Hmmm...Well, now the dollar is well below 77 and down 13% since early June. In the realm of currency trading, that's a massive move. I guess, despite the rhetoric, our policy makers are going to force a lower dollar on the world in an attempt to devalue the Government's way out of its catastrophic debt load and spending deficits. Quit frankly, this will ultimately transform the masses into serfs. It's still far from being too late to move as much of your wealth as possible into gold/silver, the ONLY form refuge from this ongoing currency debasement.

Housing

In case you missed it, the Mortgage Bankers Association released its weekly mortgage applications index today. The purchase index was down 8.3% from last week. It was 37.1% lower than the same week last year. Here's the press release: LINK

Yikes. The MBA press release spin focused on the refi activity. With rates at all-time historic lows, of course we would expect robust refinancing activity. But this does nothing to stimulate the economy. In fact, given the fee-skim involved every time a piece of paper is churned in the financial markets, ultimately refi's are likely GDP negative. The purchase index, and it's trendline since the homebuyer tax credit expired, means more severe pain for the economy.

Obama's Government Hiring Bubble

Obama has proposed a $50 billion transportation spending program to create jobs in construction (get ready for more rediculously annoying traffic congestion caused by road work that we can't afford to pay for), manufacturing and retail. Our Government by the day looks more and more like the one portrayed in "Atlas Shrugged." Here's the news report: LINK

There's not really much that can be said about this other than to note what a tragedy Obama's failed, failing and doomed-to-fail borrow and spend policies are becoming. Soon every private employee in this country will be working pretty much solely to keep Government employees employed and set-up with rich benefits. Probably time to start planning an eventual exit from this country. I have one close colleague who is working on this currently.

And Finally...Va bene!

Don't ask me how long this current move in gold/silver will last OR how high it will go before the inevitable correction. My fund partner and I are doing our best to hold onto this thing as this bronco bull bucks many off of it. The "Cafe Indicator" used by Bill "Midas" Murphy at http://www.lemetropolecafe.com/ to measure bullish/bearish sentiment in the metals hit historic lows today. This is bullish. On the other hand, I wasn't happy to see Gartman announce that he had reloaded his gold position - well, at least the paper/fake position assumed by newsletter pimps. With Gartman's near-flawless contrarian indicator track record with respect to the metals, this can be interpreted as bearish, although he only put on a "wussified" 1-unit, so for now the Gartman indicator is still neutral in my mind.

What I'm willing to do is put down some potential price targets that would be in the context of the moves experienced in the 2005 bull move and the 2008 bull move. Please note that I am not making a price prediction here. At this point I have no idea. Having said that, in 2005 the rally culminated in May 2006 with a 66% gain; the move that culminated in March 2008 resulted in a 54% gain. IF this current move takes on the same kind of magnitude as with the 2005/2008 moves, it would suggest a price objective somewhere between $1700 and $1900. Please don't bust my balls if this thing goes into its corrective phase before those levels. The best advice I can offer is to take small profits as this moves higher and use tight stops on trading positions. This will get very volatile and buy and hold is always the most consistent strategy in a bull market.

Tuesday, October 12, 2010

As Americans unload all of their gold and silver jewelry at fire-sale prices into the "cash-for-gold" operators in order continue financing an unsustainable lifestyle, the demand for gold from people around the rest of the world has led to the proliferation of gold-dispensing ATM machines.

This is not just about dispensing the world's oldest currency to paranoid, barbarous gold-freaks. This could well be a prelude to the reinstatement of gold and silver as the global currency standard. While it is likely that as the U.S. Government creeps further into totalitarianism and thereby imposes a fiat paper currency standard within U.S. borders, it would appear that the rest of the world is slowly transitioning into a system in which gold and silver are to be used fungibly for mundane commercial transactions.

Viet Nam is the latest country to make gold-dispensing ATMs available to the hoi polloi. With Viet Nam's currency pegged to the U.S. dollar, the country is experiencing accelerating price inflation - a consequence of the systemic ravages caused by unfettered paper money creation.

In fact, most of the world is now feeling the effects of the monetary debasement caused by the incipient currency wars. With basic commodities trading lock-limit up on several of the past trading days, it won't be long before the American consumer will soon be plagued by the blight of price inflation, despite the Government's absurd effort to force-feed the media with low CPI fairy tales.

Gold and silver prices are behaving much differently right now than they have for the past nine years of the precious metals bull market. Every attempt since August by the banking cartel to knock down the price of gold using Comex/LBMA paper has been met with aggressive accumulation by big buyers globally.

While I expect price volatility to increase substantially going forward, if you are looking to begin accumulating gold/silver or add to your existing positions, I would suggest that you buy on every pullback. And the mining stocks will be even more interesting. As measured by the Gold/XAU or Gold/HUI ratios, the mining stocks have been lagging the price of gold for quite some time now. As the supply of physical gold/silver depletes, I anticipate that the price/oz of gold in the ground that the market is willing to pay for good mining stocks and promising junior explorers will soon explode. I expect that eventually (meaning over the next 3-5 years) we will see price euphoria in the mining stocks exceed what we witnessed during the tech/internet bubble. There's just way too much paper money sloshing around globally that will ultimately seek refuge in anything connected with precious metals...

Sunday, October 10, 2010

We would get the Weimar-like money printing/hyperinflation/collapse over with sooner and then on to some kind of revolution/real change and a shot at starting over in this country. My wish would be that we use the original Bill of Rights (1st Ten Amendments of the Constitution) and gold/silver-backed currency system AND those of us invested heavily in precious metals and mining stocks would make a lot of money and possibly have a say in shaping the next era. Here's the full article link: Soros wants to print!

I guess we can all have dreams...

To-morrow, and to-morrow, and to-morrow,Creeps in this petty pace from day to day,To the last syllable of recorded time;And all our yesterdays have lighted foolsThe way to dusty death
("Macbeth" - Act 5, scene 5)

Thursday, October 7, 2010

Today the signs are all there for an earth-shaking currency collapse, but we are all like a bunch of rabbits,glued to the highway, mesmerized and immobilized by the glare of an oncoming eighteen wheeler. In fact, a convoy of eighteen wheelers. If the first one doesn’t get us, the second certainly will.

That's by Murray Pollit of Pollit & Co. This is one analyst/commentator to whom I always pay attention. I've linked his entire commentary below (it's short and not sweet).

Wednesday, October 6, 2010

Health Insurance Companies Say That They Plan To Raise Premiums Significantly Because Of The New Health Care Reform Law

many of these health insurance companies are openly admitting that they are raising rates because of the mandates contained in Barack Obama's new health care reform law. Of course when the health care reform bill was being debated, Barack Obama swore up and down that this would never happen. At the time, Obama promised that the average American family would save $2,500 in yearly health care premiums under the new law.

I had this debate about the Healthcare Farce Bill with several blindly ardent Obama/healthcare reform supporters. It was blatantly obvious to me that Big Pharma, Big Hospital and Big Insurance were all going to pay off their reps in Congress in order to create a Bill which would transfer massive amounts of wealth from us to them.

Wanna know how I knew? Follow the money: Big Pharma spent $100's of millions in advertising and lobbying in order to get this legistlation through. They didn't spend that kind of jake because they wanted to help Americans save money.

Big Insurance you say? The proof is above. But even moreso is the fact that 30 million or so uninsureds will now qualify for Government funded healthcare insurance. That's 30 million NEW policies!!! Nice, huh? No biggie, now Obama can either find clever ways to raise taxes on those of us who earn our living and pay for our own h/c insurance OR Helicopter Ben can just print up more dollars and drop 'em right into the coffers of Big Insurance.

There's a lot of other collateral damage not covered in the media. Many small businesses have had to cut their workforce because they couldn't afford the added expenses required by this "reform" legislation. And several big corporations immediately took billions in charges to reserve for the added expense. The charges taken significantly reduce the level of taxable corporate income.

I never in my worst nightmares ever thought I would come to this, but it would appear to me that Obama and his Change Now policies have only changed things for the worse both for me and from the way they were with W in the Oval Office.

And please do not forget or overlook the the fact that the very Congressmen who passed this legislation largely never read the entire Bill AND they have their own Congressional, publicy funded healthcare plan that operates outside of this legislation. I hope Harry Reid and Nancy Pelosi burn in hell.

Tuesday, October 5, 2010

Japan announced a renewed zero interest rate policy and a quantitative easing initiative designed to jump-start its economy and presumably drive the yen lower vs the dollar in order to stimulate exports. Here are the details via the NY Times: LINK

While gold did jump in price when this news hit the tape around 12:45 a.m. NY time, interestingly most of the overnight move in gold and silver did not occur for another three hours, when London opened:

(click on chart to enlarge)

Just as interesting, while the yen initially dropped vs. the dollar, it is now trading higher vs. the dollar than when the news hit the tape. The spot dollar plunged is now well below the 78 level:

(click on chart to enlarge)

I don't know about anyone else, but I find this market response quite interesting and it's not what I would have expected - at least initially - if someone told me that the Bank of Japan was going to ramp up the currency wars like this last night.

Actually, I would have expected gold to pop, but I also would have expected to see the yen plunge vs. the dollar, at least for the short term.

So what is going on here? I believe the market is responding to what it believes will be the U.S. Fed's "counter-measures" to Japan's move last night. In fact, Japan's QE proposition is actually quite small (including the bank lending pool announced, it's not much more than $400 billion) compared to the first round of QE of roughly $1.7 trillion in total by the U.S. It is my view, in conjunction with the speech issued last week by the NY Fed's William Dudley (who is also a former Goldman Sachs partner, meaning he is plugged into the policy channels if not creating them outright), that the U.S. is getting ready to announce, in some form, an even larger stimulus program next month.

The precious metals market and the US dollar index are thus behaving in a manner which is consistent with the expectation by the market that the Fed/Obama Admininistration will respond to Japan's currency war shot with an even more powerful shot across the bow of its own.

As I write this, gold and silver continue to spike higher. The big banks who are short gold and silver via leveraged paper positions are going to get annihilated here. The "spikes" in prices are coming in "waves" that reflect the waves of nausea and vomiting that are occurring with the traders on the Comex/LME who are managing absurdly excessive paper shorts. Today may be the day that these traders are carted off the metals exchanges on GATA stretchers.

Monday, October 4, 2010

(Act 1, Scene 3 Macbeth). The National Association of Realtors released its montly pending home sales index today. The headline cheerily reported "another gain." Here's the link: Pending Home Sales. Of course, in taking its cue from Government economic reporting, buried in the cheerleading is that fact that the number originally reported for July was revised lower, as was the case for the June number when July was reported.

Interestingly the NAR chief economist Lawrence "the glass is overflowing" Yun's comments uncharacteristically reflected some caveats to his effervescent commentary. If Yun is now hesitatingly shaking his pom-poms, the true conditions of the housing market must be just absolutely horrific. Not to mention the fact that, despite record low mortgage rates, the August 2010 index level is 20% below the level reported for August 2009. Take away the homebuyer tax credit and introduce a sell-off in the bond market, and the housing market is set up for another cliff dive (nothwistanding the fact that the economy is headed into purgatory and the job market, other than for Government employees, continues to deteriorate).

It is my view that before the housing market ever reaches a true bottom, we are likely to see prices fall at least another 30-40% from where they are now. I said back in 2002 that I expected ultimately, minimually a 75% decline from peak prices. That has already occurred in some of the worst bubble markets. I know that on a case-by-case basis some very high end homes in Denver (Cherry Hills Village) are down in excess of 60%. The bottom line is that, despite what even some nabobs of negativity like Nouriel Roubini are saying, we still have a long way to go.

Friday, October 1, 2010

The dollar has plunged another 60 basis points, from 78.90 to 78.30 (spot basis) from my post yesterday. It looks like Tim Geithner, that moron and tax criminal who Obama annointed to be in charge of the management of the U.S. dollar, stated overnight that there is no threat of a U.S./China trade or currency war. This was after the House overwhelmingly passed legislation which would enable the U.S. to impose trade sanctions against China. Thus, Geithner's idiotic statement of course means that both a trade and currency battle with China are imminent.

Here's a weekly chart of the U.S. dollar:

(click on chart to enlarge)

Just to be clear, I expect that the dollar, on a technical basis, will soon experience some kind of trading bounce. I'm not sure I would trade this from the long side. The better bet would be to cover your dollar short partially and add even more to it if the dollar does bounce. I can't see any bounce going much higher than the the 80 area.

Of course, the highest probability way to play this is to just keep adding to your gold, silver and mining stock positions. Make no mistake about it, a substantially weaker U.S. dollar will lead to a significant and painful decline in the lifestyle and wealth of most people in this country. The only way to protect yourself from this impending disaster is to move as much of your wealth as possible into the precious metals and mining stock sector (and commodities).

As many of you have noticed and commented, the HUI/XAU mining stock indices have been lagging the movement of the metals for the better part of 4 years. I think this dynamic is shifting into one in which the mining stocks will outperform the metals - and the junior mining stocks offer explosive upside. More on this next week...

Eric Arthur Blair aka George Orwell

"Hope" is not a valid investment strategy

Full Time Jobs Over Last 5 Years

Is Your Gold Missing?

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Epic Quote - "Jesse" Sent This To Me

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." - Anonymous

The Basic Fundamental Problem

What's the solution?

“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS THE RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION OR LATER AS A FINAL AND TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED.”

Ludwig von Mises – Austrian Economist (1881- 1973)

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie? JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

Priceless Quote From Richard Russell

On Larry Summers: This doofus practically ruined Harvard when he headed it. I can't think of a worse choice to be chief economic advisor. I wouldn't trust Summers to manage a Starbucks franchise.

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.

Quote of the Month

And very relevant in the context of yesterday's post about gold moving higher against all fiat currencies:

Just imagine what would happen if a mere ten percent of the money currently going into bonds were instead to go into gold. As in 1972, the real move has yet to begin.

- Murray Pollit, Pollit & Co.

A Picture Says It All...

www.moneyandmarkets.com

Golden ore samples produced by Eurasian Minerals

Undisclosed exploration site

The Next Reserve Currency?

1 oz. Chinese Panda

Guess who said this?

Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.

-Alan Greenspan, 9 Sep 2009

THIS is what REAL money looks like

1 oz. Gold Eagles

Alan Greenspan said what?

“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

From "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan

About Me

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance.
Currently I co-manage a precious metals and mining stock investment fund in Denver.
My goal is to help people understand and analyze what is really going on in our financial system and economy.